FEDERAL COURT OF AUSTRALIA Matthews v Doctrieve Corporation Pty Ltd [2003] FCA 459 INTELLECTUAL PROPERTY – trade mark – passing off whether estopped from alleging breach of trademark and passing off – representation by silence – nature of detriment PRACTICE AND PROCEDURE – parties – equitable assignment - equitable assignees of chose in action wishing to sue – whether assignor must be joined. Corporations Act 2001 (Cth) ss 601AA, 601AB, 601AD(2) Trade Practices Act 1974 (Cth) s52 Ballarat Products Limited v Farmers Smallgoods Co Pty Ltd [1957] VR 104 cited Baytur SA v Finagro Holdings SA [1992] 1 QB 610 cited Bute (Marquess) v Barclays Bank Limited [1955] 1 QB 202 cited Canada and Dominion Sugar Company Limited v Canadian National (West Indies) Limited [1947] AC 46 cited Commercial Factors Ltd v Maxwell Printing Ltd [1994] 1 NZLR 724 cited Commonwealth v Verwayen (1990) 170 CLR 394 considered Douglas Valley Finance Co Ltd v S Hughes (Hirers) Ltd [1969] 1 QB 738 cited Foran v Wight (1989) 168 CLR 385 cited Hollins v Fowler (1875) LR 7 HL 757 cited Jennings v Credit Corp Australia Pty Ltd (2000) 48 NSWLR 709 cited Kark (Norman) Publications Ltd v Odhams Press Ltd [1962] RPC 163 referred to Low v Bouverie [1891] 3 Ch 82 cited Martindale v Smith (1841) 1 QB 389 cited Morgate Mercantile Co Ltd v Twitchings [1977] AC 890 applied Olga Investments Pty Ltd v City Power Limited [1998]3 VR 485 cited Pacol Limited v Trade Lines Limited (the 'Henrik Sif') [1982] 1 Lloyd's Report 456 cited Performing Rights Society Limited v London Theatre of Varieties Limited [1924] AC 1 cited Poiret v Jules Poiret Ltd (1920) 37 RPC cited Star Industrial Co Limited v Yap Kwee Kor [1976] FSR 256 referred to Thomas v National Australia Bank Limited [2000] 2 QdR 448 cited Thompson v Palmer (1933) 49 CLR 507 applied Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 considered Weddell v JA Pearce & Major [1988] 1 Ch 26 cited William Brandt's Sons & Co v Dunlop Rubber Co Limited [1905] AC 454 cited GJ Tolhurst'Equitable Assignment of Legal Rights: A Resolution to a Conundrum' (2002) 118 LQR 98 JEFFREY GEORGE MATTHEWS v DOCTRIEVE CORPORATION PTY LTD, EARL ERIC WOOLLEY, AFSHIN BAKTASHI, ANTHONY GLASS, PETER NICHOLAS RAMENSKY and CLIVE DONNER V 1270 of 2001 FINKELSTEIN J 15 MAY 2003 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V1270 of 2001 BETWEEN: JEFFREY GEORGE MATTHEWS Applicant AND: DOCTRIEVE CORPORATION PTY LTD, EARL ERIC WOOLLEY, AFSHIN BAKTASHI, ANTHONY GLASS, PETER NICHOLAS RAMENSKY and CLIVE DONNER Respondents JUDGE: FINKELSTEIN J DATE: 15 MAY 2003 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 Instant Document Retrieval Pty Ltd (IDR) was established (under a different name) in 1994 by the applicant, Mr Matthews, and the second respondent, Mr Woolley. The company produced and marketed a document imaging software system which facilitated the electronic storage and retrieval of documents that would otherwise be kept in hard copy. The business was run by Mr Woolley and financed by Mr Matthews. The software was sold under the mark "Doctrieve" from June 1995. Over four years, Mr Matthews and his company Homewrap Packaging & Supplies Pty Ltd (Homewrap) invested more than $300,000 in IDR. As at March 1998 there was little prospect that this debt could be repaid. In an extraordinary general meeting of IDR held on March 1998, it was resolved that Mr Matthews would purchase IDR's assets for $50,000 and that this amount would be offset against his debt. At the time the value of the business, comprising its goodwill, intellectual property (including copyright and the trade mark Doctrieve) and plant and equipment, was $25,000. In addition to purchasing the business, Mr Matthews also acquired the stock on hand and took an assignment of the book debts. The purchase was completed in early July 1998. 2 Notwithstanding the fact that Mr Matthews acquired the business and became the proprietor of the trade mark Doctrieve, the IDR business was conducted and the trade mark used by the first respondent, Doctrieve Corporation Pty Ltd (Doctrieve Corporation), a company established by Mr Woolley. In this action Mr Matthews sues for trade mark infringement, passing off, an associated claim of breach of s 52 of Trade Practices Act 1974 (Cth) and conversion. The principal defence to the first two causes of action essentially is that Mr Matthews is estopped from contending that he did not give permission to Doctrieve Corporation to conduct the IDR business and sell software under the name Doctrieve. The claim in conversion relates to the stock in trade which Mr Matthews purchased and which he says has been sold and the proceeds retained by Doctrieve Corporation. This claim is defended on the ground that there is no evidence that any stock purchased by Mr Matthews was ever in the possession of Doctrieve Corporation or was converted by that company. 3 It is necessary to refer to the facts more extensively. It is convenient to begin with the extraordinary general meeting of IDR held on 11 March 1998. Mr Matthews and Mr Woolley were present at the meeting. Also in attendance were Mr Bell, the financial controller of IDR, and Mr Beckwell, the external accountant. At the time of the meeting IDR was not trading profitably. There was no money in the bank. Its debtors were not paying their debts. The company needed to earn $30,000 in sales within two weeks to cover outstanding accounts. The minutes of the meeting record that the company was "technically" solvent because of the financial support of Mr Matthews. The better view is that IDR was hopelessly insolvent as Mr Matthews no longer intended to support the company. Indeed, he informed the meeting that unless the debts due to him and Homewrap (which then totalled around $347,942) were repaid, he would take immediate steps to recover them. Mr Woolley told Mr Matthews that the company could not then or in the foreseeable future repay the debts. These were the circumstances in which Mr Matthews agreed to acquire the IDR business in consideration of the forgiveness of $50,000 of his debt. The meeting resolved that a contract be prepared to give effect to the sale. 4 Shortly before the extraordinary general meeting, Mr Woolley approached Mr McGinley, who was then with the Queensland Information Industry Board, to assist in IDR's efforts to raise capital and expand its business operations. Mr McGinley was impressed with IDR's potential and agreed to help. Indeed, he was so impressed with IDR's potential that he said he would give up his full time position with the Board to become the general manager of the company. It seems that Mr Woolley failed to inform Mr McGinley that IDR had already agreed to sell its business to Mr Matthews. 5 Mr McGinley began to formulate a proposal for the restructuring of the business. He had in mind "an international structure that supports the sales and marketing objectives of Doctrieve throughout the world in a way that satisfies our concern to mitigate excessive taxation on the profits generated". The proposal involved a number of steps. The first was the incorporation in the United States of an "international company" in which the shareholders would be Mr Matthews and Mr Woolley. The second step was the incorporation of an Australian subsidiary of the international company. It was envisaged that the Australian subsidiary would acquire and operate the IDR business, including the name Doctrieve. The company that was to become the Australian subsidiary is the first respondent. 6 In early June 1998, Mr Woolley instructed Mr McGinley to implement the proposal, beginning with the incorporation of the two companies. Mr Matthews was aware that steps were being taken to establish the two companies and may have even agreed to their incorporation, presumably in the expectation that agreement could be reached on the ultimate restructuring of the business. 7 This brings me to the first of two significant factual disputes in this case. Shortly after its incorporation in June 1998, Doctrieve Corporation commenced to conduct the IDR business and use the Doctrieve trade mark. At the time, the business and the trade mark were still owned by IDR. The respondents contend that Mr Matthews was aware that the business was now being conducted by Doctrieve Corporation. Mr Matthews denies this allegation. The second dispute is related to the first. Not only do the respondents say that Mr Matthews knew that Doctrieve Corporation was conducting the IDR business and making use of the trade mark, they also contend that from the time Mr Matthews acquired the business and the mark, he became, by virtue of his conduct, estopped from contending that Doctrieve Corporation infringed his rights as owner of the business and proprietor of the mark. 8 The first dispute produced conflicting evidence from the witnesses. Mr Matthews strenuously denied any knowledge of Doctrieve Corporation and its activities. On the other hand Mr Woolley (supported by Mr McGinley in this regard) said that not only had the respondents informed Mr Matthews that Doctrieve Corporation had taken over the business, but Mr Matthews received weekly reports as to its progress. In the end, I need not choose between the conflicting oral evidence to resolve the issue. The dispute can be resolved substantially by reference to the correspondence which passed between, or was discussed by, the parties. 9 In early June 1998, Mr McGinley discussed his restructuring proposal in a telephone conversation with Mr Matthews. He followed up this discussion with a letter dated 11 June 1998 to Mr Matthews in which he outlined his ideas. The letter was on the letterhead of Doctrieve Corporation. The following are some extracts: "Its very difficult to provide you with enough information without you and I meeting face to face, so that I can bring all of the material to brief you. … There is a Corporate Presentation, which would assist you to understand the plans and directions. I prefer to meet with you to discuss these. Time is so precious at the moment. I need to stay very focussed and have the resources necessary to do the job of looking after the growth of DocTrieve and building shareholder wealth. Objective: Build a company which drives shareholder wealth. That company is DocTrieve. Current Situation Two shareholders with 50/50 holdings. (see analysis of investments to date for details) IDR to be wound up; in practice it has been wound up; legally I am not sure. JM wants IDR to continue until it has $0 debts. EW wants and needs DocTrieve to begin to receive all available income. Why: · There is no advantage, only disadvantage in routing income into a dead business. · DocTrieve is a new company with new management and shareholders. · Showing income in the company is essential to the attraction of new investors. … I would like your immediate help to resolve these matters." 10 There were a number of attachments to the letter. One was a copy of a letter dated 10 June 1998 to Emmanuel Tsarkis of Document Imaging Australia written on the letterhead of Doctrieve Corporation Pty Ltd and signed by Mr McGinley as the general manager of the company. The letter related to the appointment of Document Imaging Australia as the sole distributor of Doctrieve Corporation's products in Victoria. The letter reads: "Per our discussion in Melbourne on Thursday evening, May 28, 1998, DocTrieve Corporation Pty Ltd confirms that Document Imaging Australia [DIA] is appointed as a Master Distributor. The scope of that Master Distributor licence provides for DIA to focus exclusively on the insurance industry in Victoria. DocTrieve agrees not to appoint any other Master Distributor for the insurance industry in Victoria. DocTrieve also agrees to cooperate with DIA to ensure that as far as is practical and legal all business opportunities involving the insurance industry in Victoria are directed through DIA. It is the intention of DocTrieve to support DIA in Victoria so that DIA enjoys growth in business activity and growth in expertise in the insurance industry. DocTrieve Corporation is currently revising its Master Distributor Agreements. Currently I have two matters to conclude: (a) Incorporation in the USA and the incorporation in Australia. (b) Revision of the Master Distributor Agreement, which includes the terms and conditions and performance measures of the licenses. It is my expectation that the incorporation issues will be resolved by early next week. The agreements are likely to be completed for your review and execution before the end of this June. Therefore we should both be able and prepared to move forward legally as of July 1998. If I am able to assist you in developing your arrangements with Mr. Del Bruno in other ways, please do not hesitate to contact me." There is no reason to think that Mr Matthews did not read the letters of 10 June 1998 and 11 June 1998. 11 Mr McGinley also discussed his personal position in Doctrieve Corporation with Mr Matthews and Mr Woolley. One such discussion occurred on 2 July 1998. The contents are summarised in a letter which Mr McGinley sent to Messrs Matthews and Woolley on the same day. This is what the letter says: "Dear Earl & Jeff: Per our conversations of July 2, 1998, this letter summarises my understanding of the agreement reached between the current shareholders of DocTrieve Corporation and myself. As we discussed my interest is to protect my family. The prior agreement reached in April required revision because the circumstances of DocTrieve have proved to be different to that upon which we reached our agreement. I do not in any way attribute any blame to anyone. As always you have both proved to be honourable men. Our agreement included the following items: 1. Granted 10% of the shares of DocTrieve Corporation, effective immediately. 2. Appointed as Director and Vice-President of DocTrieve Corporation. 3. Appointed Director and General Manager of DocTrieve Corporation Pty Ltd. 4. Remuneration to be $100,000 per annum. This amount is subject to review and may be increased by agreement. The current circumstances of DocTrieve make full and regular payment difficult. I agree to work with DocTrieve to accommodate this challenge." 12 In July 1998 there was an allegation that IDR had engaged in misleading conduct. On 13 July 1998, a firm of solicitors acting for the Australian Society of Certified Practising Accountants wrote to Mr Woolley alleging that he had falsely represented that IDR had an ongoing relationship with the Society, that the Society sold and promoted Doctrieve to its client base and that the Society was an "agent outlet" serviced by IDR's master distributors. Undertakings were sought that the conduct not continue. Mr Matthews replied on behalf of IDR by letter dated 17 July 1998. He agreed to give the undertakings on behalf of IDR. The final paragraph of his letter says this: "Please note also that as from 30th June 1998 Mr Earl Woolley is now carrying on business under the name of DocTrieve Corporation Pty Ltd and therefore any further representations made by Mr Woolley are on behalf of DocTrieve Corporation Pty Ltd." 13 On 24 July 1998, Messrs Woolley and McGinley formulated a further proposal for the restructuring of the business and sent it to Mr Matthews. It is necessary to set out certain parts of the document: "1. DocTrieve Corporation would like to protect the rights and interests of its shareholders. The current shareholders are Woolley, Matthews and recently McGinley. Mr Matthews has expressed a desire to exit his shareholding position. The shareholders agree to support Mr. Matthew's [sic] desire. 2. DocTrieve Corporation would like to introduce new investors in order to obtain capital to grow the business. 3. New investment would be directed towards: (a) Supporting the cash flow requirements of the company as it grows rapidly. (b) To support inventory purchases ahead of customer payments. (c) To allow strategic investments to development projects · Bureaus · E-vaulting · Next generation software enhancements. (d) To bring on additional staff. (e) To pay out Mr Matthews? IDR Shareholding Earl Woolley 50% interest Jeff Matthews 50% interest Homewrap Proposal for Revisions for DocTrieve Corporation 1. DocTrieve Corporation would like to structure itself in a way that allows new investors to take up shares easily. 2. Potential Investors will react badly to a situation where a current substantial investor [Matthews] exists before the company has established itself as commercial profitable. 3. In order to allow Jeff Matthews to exit at the earliest possible time we propose that his interest be converted from equity to a Convertible Note with Preferences to Shares. The details of the proposal: On the basis that Mr Matthews agrees to (a) support DocTrieve's efforts to introduce new investors and that (b) he understands that this offer to support his exit as a shareholder is conditional on successfully accessing new investor funds and that (c) the new investors agree with this arrangement. DocTrieve will do the following: a) Matthews to exchange equity position for debt position, in the form of a Convertible Note with preferential options. b) The value of the Convertible Note to be equal to $500,000. In essence, Matthews would make a loan to DocTrieve of $500,000, secured against the opportunity to convert that debt into shares. c) DocTrieve's debt to Matthews to be paid in stages: 1. $100,000 by October 30, 1998 2. $100,000 by December 31, 1998 3. $100,000 by March 30, 1999 4. $100,000 by June 30, 1999 5. $100,000 by September 30, 1999. Proposed DocTrieve shareholding 50% controlling interest 10% minority interest 10% minority interest 30% major interest This re-arrangement has a number of potential benefits: 1. Mr Matthews achieve his objective of an exit with satisfactory return on his investment. 2. Mr Matthews and his shareholders are provided with a better defined investment agreement. 3. DocTrieve obtains greater flexibility in its structure and its financial position. 4. To a New Investor (a), the entry mechanism is simple equity without choice of current shareholding positions. This is simple and immediately available. The structure is not likely to require further revisions and there are no complexities to unravel. The position of the current investors is clearly defined. 5. Resolving this structure immediately may mean that the company is able to avoid higher costs in terms of accounting and legal fees that would occur in a re-structuring at any future date. The company can remain focussed on its plan, at a time when cash flow should remain focussed on funding the growth of the company. 6. The Convertible Note provides a mechanism that makes it attractive to DocTrieve, as a company to work towards paying off its debt. 7. It provides Jeff Matthews with more certainty about the timing and the amount of his return on his investments. 8. DocTrieve needs to be able to make commitments to attract staff in terms that there are now standard in the information technology industry. Should DocTrieve miss its repayment targets, the per quarter penalty might be $10,000. The total penalty in September 1999 if all targets are missed would be an additional $50,000. In respect of IDR's financial commitments, Matthews agrees to either pay-off or write-off the outstanding debts of IDR. DocTrieve will not be asked to divert its income from the investment and growth activities towards the historical responsibility of IDR. The [sic] preserves the absolute and legal break between the two companies. This clean break is important to everyone associated with the new company, including Mr Matthews. Clearly at this stage DocTrieve cannot afford any IDR debts." 14 Mr Matthews commented on the proposal by letter dated 25 July 1998. This was his response: "Hello chaps, These are broad comments about the proposal from you and McGinley presented to me yesterday. I emphasise that I am not scoring points, but we may need to review them. 1. If the Arrangement is to be conditional on getting a new Investor then: a) Why should I not wait and do a deal direct with that Investor?? b) I do not have any protection if attempts to get new Investors is small or non existent. c) What is the point of the arrangement if it can so easily be nullified. d) What incentives can be offered to induce me to agree, considering the above. 2. I am currently a 50% shareholder, but if an Investor is not found, then I only end up with 30% shareholding. A definite lack of incentive. 3. On page 2 (Point 2 at the bottom) it is stated that I would end up with a "better defined investment." How can it be better defined than my actual possession of the Share Certificate which you both assure me is on its way?? 4. It is stated that DocTrieve would obtain greater flexibility is its structure and financial position. This is definitely true, as in a worst case scenario it will pick up 20% of my shares. 5. Point 7 on page 3 is not correct as payment is conditional on finding an Investor. 6. The non repayment penalties as defined on page 3 are not acceptable. It would be an invitation by me for DocTrieve to use my funds at better than [sic] they would be otherwise able to commercially source. 7. My formerly agreed position on IDR Debts is that I have to first be completely satisfied that DocTrieve will recoup these losses in the short term for me if I were to commit more funds. Also, as I have made clear to you both, my partners/advisers will not agree with me providing such funds unless we have the Shareholding Certificate. (Now of course, we would accept an Agreement such as the one you have proposed once it is finalised. 8. I understand and accept your Concept, particularly on attracting new Investors, however there may be alternatives, such as paying me royalties on future sales/revenue?? Finally: It is essential, whichever way we go, that that a quick resolution will benefit all parties. Over to you." 15 This elicited an immediate reply from Mr McGinley. The reply expressed extremely pessimistic views as to the viability of Doctrieve Corporation. Without wishing to burden these reasons unnecessarily, it is important to set out a number of his comments: "Thanks for the letter of 25 July with your thoughts in respect of the DocTrieve proposal. Overview of DocTrieve's position. · Financial Position: Cash at Bank = effectively none. Current debts are on any day sometimes greater than income. The company is a day to day operation. McGinley and Woolley's credit cards and personal loans are funding the business. You currently has [sic] no financial liability in DocTrieve [Australia]. · Share Value: In respect of current shareholders the value is $0. DocTrieve is seeking to project itself as having a high value to investors. The market to date has not accepted that valuation and has been unwilling to invest at all. The projected sales of the company are just that, coming off almost 5 months of non-activity. The trading history of IDR is a negative and should not be linked to the outlook of DocTrieve. · Operational Viability: • If Woolley was to stop work today the business would be stopped dead and the likelihood of it continuing would be zero. • There are currently no reserves to make and secure the necessary acquisitions from Redwood; the outstanding licenses with current customers appear unlikely to realise a return. • The deals being worked on currently have resulted from Woolley's renewed optimism and the distributors and clients' increased comfort that with McGinley in place the company is more than a one-man band. • DocTrieve's value is all about what it is capable of accomplishing from now on. In respect of the questions and points: Point 1. a) • Your option is to wait for another opportunity to define a means of return. Any deal with Investors is the responsibility of the Boad and will be done in the interests of all shareholders. Investors do not usually agree to other investors being paid out before themselves. Getting any return is likely to mean 2001 of things go according to plan. Who's to say that you would get as good a deal? b) • Earl has constantly been looking for new investors. Why should he stop now? That would be self-defeating, is [sic] not Earl's way and it never has been. c) • By nullification McGinley assumes that you mean that the deal is contingent on finding an agreeable investor. That is true. • Well, no investor = no future, simple as that. The company would fold or at least be very unlikely to ever pay any dividend sufficient to recoup any investors' investment to date. It might simply pay its bills and wages. … Point 4. You can be either: · A shareholder with no promise and all the risks associated; OR · A secured debtor, with a declared value position and a schedule of planned payments. The choice is to define the value and the return to You based upon the contribution in dollar terms. This requires a trade in terms of percentage of shareholding. Otherwise there is no incentive for DocTrieve to make such an offer. The net result may be that DocTrieve will have a greater likelihood of obtaining investment. The alternative is to declare the shareholding as planned and attempt to trade with all shareholders having a similar undefined value or likelihood of return. Assuming DocTrieve stays solvent and is able to attract an investor, those negotiations with investors will deliver an unpredictable outcome to all shareholders. This proposal gives you a preferential situation as a secured debtor. … Point 8. The shareholders of DocTrieve must find a way to get back on the same side of the table. DocTrieve is in a very vulnerable place. The indecision and lack of commitment to that which is optimal for the operation of the company by all of the shareholders cannot continue. This is a high-risk situation. The company lacks capital. Without more capital it is doomed. The current shareholders have to make further investments or exit in favour of those who will." There were no further discussions about the proposal after this correspondence. 16 I draw the following conclusions from the correspondence and the discussions referred to in the correspondence. First, the purpose of incorporating Doctrieve Corporation was to take over the IDR business. Second, by the end of June 1998, if not a little earlier, Doctrieve Corporation was operating the IDR business under the instruction of Mr Woolley with Mr McGinley acting as general manager. Third, until the end of July 1998, the parties were involved in negotiations to determine what role Mr Matthews would play and what interest he would have in the IDR business. At that point the negotiations came to an end without agreement having been reached. Finally, notwithstanding that there was no agreement on Mr Matthews' future involvement in the IDR business, it was likely that Doctrieve Corporation would continue to operate the IDR business and use the Doctrieve trade mark despite the fact that the business and the trade mark were then owned by Mr Matthews. On this last point, two matters should be noted. The first is that although Mr Matthews had purchased the IDR business, it was not his intention to conduct the business. He was not equipped to do so. The value to him of the assets lay in the copyright for the Doctrieve computer software. Secondly, Mr Matthews had an expectation that the copyright could be exploited sometime in the future. In my opinion, however, the possibility of this occurring was remote. One problem with the software was that it was not "Y2K compliant" and needed a good deal of work to make it comply. 17 This brings me to the second significant controversy. This concerns the claim that Mr Matthews "represented" that he would allow Doctrieve Corporation to conduct the IDR business and use the Doctrieve trade mark. In his affidavit, Mr Woolley said that in May and June 1998 he had discussions with Mr Matthews about the incorporation of Doctrieve Corporation for the purpose of using the name Doctrieve in Australia and in other jurisdictions. According to Mr Woolley, Mr Matthews "agreed and acknowledged" that either Mr Woolley or a company associated with him would be entitled to use the Doctrieve mark in Australia and overseas. In amplification, Mr Woolley said that it was agreed between Mr Matthews and himself that if, at some time in the future, Mr Woolley personally made a profit from any DocTrieve products, he would negotiate with Mr Matthews in good faith in relation to the repayment of some of the money Mr Matthews had contributed to IDR. According to Mr Woolley, "Matthews accepted this proposal and thought it was a good idea". Mr Woolley could not, however, proffer firm details of Mr Matthews' purported "agreement", "acknowledgment" or "acceptance". 18 During the hearing, I said to counsel that because the conversations to which Mr Woolley referred were controversial, I would not accept his evidence by affidavit and that Mr Woolley should deal with them in oral evidence. Although Mr Woolley attempted to do so, he did not ultimately advance his case very much. This is what he said: "Q: Can I ask you about the conversation or conversations you had at the time Mr Matthews was, as you described, losing interest or whatever expression you used. Can you tell his Honour about whatever arrangements were made between you at that time? A: Up till June, July, I was trying to keep Jeff fully informed of what's going on, so there was no concealment from him whatsoever of what we were doing. Q: What was going on? A: The business was operating. We were servicing the customers. We were selling the product. It was operating as a business. We kept that open relationship with Jeff and then after the June, July loss of interest I informed Jeff that I was going to continue on with the business and that if I made a profit I personally would try and rectify and pay him back some of the money that IDR had invested, or that he had invested IDR. Q: How much of the profit would you give up? Was it the subject of discussion? A: No, it never became part of a discussion. So it was that open. Jeff also realised that if we didn't continue to trade there was absolutely no value in anything that he held. Q: But when you say he realised that, did he say something to you to that effect? A: Sorry? Q: You said Jeff realised the position? A: Yes Q: But I'm more interested in what he said to you, as opposed to your assessment of the position or something. Did he say something to you about it? A: No, I said that to Jeff and McGinley said that to Jeff and it was also put in correspondence to Jeff, so I made that statement. But he again did not deny it. He never came back with any other statement; he just accepted that - or, sorry, yes, he didn't defend it. We just continued on operating with his knowledge. Q: On the basis that he was still, indirectly through shareholding or some other means, an interested party in the business although not a contributor? A: No, no holding whatsoever in it. Q: On what basis did he lose - he had bought the business from you, from IDR? A: Yes, he did that. Q: Did he give his business to you? A: I believe he did, yes. Q: Why do you believe that? A: Because it was the only option he had to make it viable, to show a profit." 19 Mr McGinley provided some support for Mr Woolley's evidence. In his affidavit Mr McGinley said: "Between April and 1 July 1998, I had been involved in several conversations and meetings with Matthews and Woolley in which the First Respondents entitlement to market and sell computer software programs (formerly sold by IDR) using the name Doctrieve had been discussed and accepted. Matthews had made statements to me and Woolley that indicated that he was fully cognisant of the fact that the First Respondent was and would continue to operate the business formerly conducted by IDR, and would do so by reference to the 'Doctrieve' name." However, as with the evidence given by Mr Woolley, the lack of detail given by Mr McGinley concerning the content of these conversations is striking. 20 The application of the principles of estoppel to the facts of this case raises one or two matters of some difficulty. The first is what particular branch of estoppel is it alleged has come into play? On the present state of the authorities (as to which see in particular Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; Foran v Wight (1989) 168 CLR 385; Commonwealth v Verwayen (1990) 170 CLR 394) it is still necessary to draw a distinction between common law estoppel, which is concerned with an assumption about an existing state of affairs, and equitable estoppel which involves future events or promises about future rights. This case has been conducted on the basis, so it seems to me, that Mr Matthews is estopped from denying that he had given permission to Doctrieve Corporation to conduct the IDR business and use the Doctrieve name (a common law estoppel). On the other hand, the facts could also permit an argument that Mr Matthews is estopped from exercising his existing rights as owner of the business and proprietor of the Doctrieve trade mark (an equitable estoppel). 21 One way in which both common law estoppel and equitable estoppel can arise is by representation. This requires the representator to establish an unequivocal representation as to the existence of a state of affairs or as to future conduct. Such a representation must be clear and unambiguous: Canada and Dominion Sugar Company Limited v Canadian National (West Indies) Limited [1947] AC 46, 56-57; Olga Investments Pty Ltd v City Power Limited [1998]3 VR 485, 499. This does not mean, however, that the representation cannot be open to different constructions. But before the representation can found an estoppel, the meaning that is given to it by the representee must be reasonably open: see Low v Bouverie [1891] 3 Ch 82, 106; Bute (Marquess) v Barclays Bank Limited [1955] 1 QB 202, 213. 22 Moreover, to found an estoppel the representation need not be made expressly. In certain circumstances the representation can result from silence. In Thompson v Palmer (1933) 49 CLR 507 at 547 Dixon J said: "The object of estoppel in pais is to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other's detriment. Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment; or because he has exercised against the other party rights which would exist only if the assumption were correct,…; or because knowing the mistake the other laboured under, he refrained from correcting him when it was his duty to do so; or because his imprudence, where care was required of him, was a proximate cause of the other party's adopting and acting upon the faith of the assumption; or because he directly made representations upon which the other party founded the assumption. But, in each case, he is not bound to adhere to the assumption unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted." Although these observations were made in relation to estoppel in pais, they apply equally to equitable estoppel: see Verwayen at 453 per Dawson J and 499 per McHugh J; Waltons Stores at 427 per Brennan J and 458 per Gaudron J. 23 In this case, the respondents rely not only on what they allege Mr Matthews said in his discussions with Mr Woolley but also in what he did not say. The respondents place reliance on an alleged legal duty on the part of Mr Matthews to speak out and inform them that Doctrieve Corporation did not have his permission to conduct the business or use the trade mark. The requisite legal duty is not confined to a pre-existing legal duty. In Morgate Mercantile Co Ltd v Twitchings [1977] AC 890, 903 Lord Wilberforce said: "…, I think that the test of duty is one which can safely be applied so long as it is understood what we mean. I have no wish to denigrate a word which, to modern lawyers, has became so talismanic, so much a universal solvent of all problems, as the word 'duty,' but I think that there is a danger in some contexts, of which this may be one, of bringing in with it some of the accretions which it has gained – proximity, propinquity, foreseeability – which may be useful, or at least unavoidable in other contexts. What I think we are looking for here is an answer to the question whether, having regard to the situation in which the relevant transaction occurred, as known to both parties, a reasonable man, in the position of the 'acquirer' of the property, would expect the 'owner' acting honestly and responsibly, if he claimed any title in the property, to take steps to make that claim known to, and discoverable by, the 'acquirer' and whether, in the face of an omission to do so, the 'acquirer' could reasonably assume that no such title was claimed." These observations suggest that to base an estoppel on silence it is sufficient if the person against whom the estoppel is raised, if acting reasonably, would bring the true facts to the attention of the person known (or the person who ought reasonably to have been known) by him to be operating under some mistaken view of the facts or of their respective rights: Pacol Limited v Trade Lines Limited (the 'Henrik Sif') [1982] 1 Lloyd's Report 456, 465. 24 Finally, for the purpose of this case, to found an estoppel based on representation it is also necessary to show that the representee has acted, or omitted to act, in a particular way in reliance on the representation and that the representee will suffer detriment if the representor is not held to his representation. 25 Each of the elements of an estoppel has been made out to my satisfaction. While it is not possible on the evidence to find that Mr Matthews made an express statement to the effect that Doctrieve Corporation had his permission to conduct the IDR business and use the Doctrieve trade mark, he was under a duty, when the negotiations for the restructure came to an abrupt end in late July, to inform Doctrieve Corporation that it did not have his permission to continue to conduct the business and use the Doctrieve mark. At that point it was obvious to Mr Matthews, or at least it would have been obvious to a reasonable person in Mr Matthews' position, that Doctrieve Corporation would continue to conduct the IDR business believing that it could do so with impunity. If Mr Matthews wished to complain that such conduct infringed his legal rights, he was obliged to bring this complaint to the attention of Doctrieve Corporation. Having failed to do so, perhaps quite innocently, Mr Matthews allowed Doctrieve Corporation (through Mr Woolley) to believe that its conduct was lawful. In these circumstances, it is unconscionable for Mr Matthews to bring the action claiming trade mark infringement, passing off and misleading conduct. It is unconscionable because by conducting the business, which it otherwise would not have done, Doctrieve Corporation has infringed Mr Matthews' trade mark and may also have committed the tort of passing off and breached s 52 of the Trade Practices Act. The are many cases where a passing off action has been successful though the business protected has not been conducted for many years, provided the owner intends that the business will resume: Poiret v Jules Poiret Ltd (1920) 37 RPC 177; Ballarat Products Limited v Farmers Smallgoods Co Pty Ltd [1957] VR 104; cf Kark (Norman) Publications Ltd v Odhams Press Ltd [1962] RPC 163; Star Industrial Co Limited v Yap Kwee Kor [1976] FSR 256. Because of Mr Matthews' silence, Doctrieve Corporation rendered itself potentially liable to injunctive relief, damages, an account of profits and costs. This is the detriment the corporation will suffer if Mr Matthews is not held to his representation. 26 I now turn to the conversion claim. It can be disposed of very quickly. The principles are not in doubt. An act which is an interference with the dominion of the true owner of goods is a conversion. To constitute an impermissible interference, there must be some act of the defendant which is inconsistent with the rights of the owner: Hollins v Fowler (1875) LR 7 HL 757, 766. Thus, the tort is committed when the defendant asserts ownership of the goods or does any other act which is inconsistent with the rights of the owner: Douglas Valley Finance Co Ltd v S Hughes (Hirers) Ltd [1969] 1 QB 738. So, for example, a person who sells goods he does not own and hands them over to a purchaser is guilty of conversion: Martindale v Smith (1841) 1 QB 389, a case in trover. To succeed in the action the plaintiff must show, with sufficient certainty, what goods have been taken by the defendant. It may not be necessary for him to identify those goods item by item, but he is required to at least identify them generally and prove that they have been converted. Only then can their value be assessed for the purposes of measuring the damages for which the defendant is responsible. 27 In this case, Mr Matthews has not been able to identify any goods belonging to him which have been converted by Doctrieve Corporation. So much is, in effect, conceded. The way Mr Matthews put this part of his case was summarised in counsel's written outline: "Conversion centres upon the failure by Woolley and the first Respondent to account to Matthews (and IDR) for some sales leading up to July 1998… and not at all thereafter for and in respect of stock which should have been transferred to Matthews upon sale. The quantum is unknown, and the Respondents have refused to discover at all in respect of this issue, claiming that to do so amounts to discovery on quantum which is for another phase of the litigation. But failing to do so at all largely neuters the attempts to establish misconduct the knowledge of which is peculiarly in the possession of the Respondents." 28 I can immediately put to one side the alleged failure by the respondents to make proper discovery. Even if this be true, that does not advance Mr Matthews' case. If there has been a failure to make proper discovery this could have been cured before trial. Be that as it may, the submission misstates the true position. It is not for Doctrieve Corporation or Mr Woolley to "account" for the stock which Mr Matthews purchased from IDR, at least not before Mr Matthews has established that his stock found its way into their possession. It is for Mr Matthews to identify the stock which he purchased from IDR, then show that this stock (or some of the stock) came into the possession of Doctrieve Corporation or Mr Woolley. Finally, Mr Matthews must establish that the relevant stock has been converted by Doctrieve Corporation or Mr Woolley. If Mr Matthews were able to establish the first two elements, the third may easily be made out. As it turns out, however, Mr Matthews failed to lead any evidence to establish the identity of any goods taken by Doctrieve Corporation or Mr Woolley, or that any of his goods have indeed been converted. Although I have some sympathy for his plight, because I suspect that Doctrieve Corporation may have taken and sold some property belonging to Mr Matthews, sympathy is not an element of the cause of action. 29 This brings me to the final matter with which I must deal. During the course of closing submissions, Mr Matthews sought leave to amend his already amended statement of claim to bring in a new cause of action. Mr Matthews wishes to recover $24,322 as money had and received from Doctrieve Corporation or Mr Woolley. The amount in issue represents the payments of a number of the book debts purchased by Mr Matthews from IDR. It seems that when the debtors paid the amounts due to IDR, Mr Woolley "diverted" the funds to the account of Doctrieve Corporation. 30 I propose to grant Mr Matthews leave to amend in the terms he seeks. He will, of course, be ordered to pay the costs thrown away by reason of the amendment. The costs thrown away may include the costs of any further hearing which is necessary by reason of the amendment. That is a matter that will be considered in due course. 31 I should mention that I have allowed the amendment although the evidence suggests that Mr Matthews is merely the equitable assignee of the book debts. This raises the question whether Mr Matthews can prosecute the claim to judgment without joining either IDR or the Australian Securities and Investments Commission (ASIC) as a party. The joinder of IDR may be impractical because it has been struck off the register of companies in accordance with either s601AA or 601AB of the Corporations Act 2001 (Cth) and an order for its reinstatment would have to be made before it could be joined. If the company is not reinstated Mr Matthews may be required to join ASIC, the successor in title to IDR's legal interest in the debts: see s601AD(2) of the Corporations Act. 32 The reason why I have not, at this stage, required the joinder either of IDR or ASIC is as follows. For many years the general rule has been that when a plaintiff has only an equitable right in a debt the person having the legal right to payment must in due course be made a party to the action. The purpose of the rule is to prevent multiple proceedings against the defendant: Performing Rights Society Limited v London Theatre of Varieties Limited [1924] AC 1, 13-14. If an action is brought by the equitable assignee of a debt the cases show that any deficiency in parties can be remedied and, in the meantime, the absence of the legal owner of the chose in action does not render the action void: William Brandt's Sons & Co v Dunlop Rubber Co Limited [1905] AC 454, 462. In any event, there is authority for the proposition that it is not always necessary for an equitable assignee to join his assignor when bringing proceedings: Weddell v JA Pearce & Major [1988] 1 Ch 26, 40; Baytur SA v Finagro Holdings SA [1992] 1 QB 610, 617; Commercial Factors Ltd v Maxwell Printing Ltd [1994] 1 NZLR 724, 734-735; Thomas v National Australia Bank Limited [2000] 2 QdR 448, 457-458; Jennings v Credit Corp Australia Pty Ltd (2000) 48 NSWLR 709, 719-722. See also GJ Tolhurst'Equitable Assignment of Legal Rights: A Resolution to a Conundrum' (2002) 118 LQR 98. Whether or not this is a case in which the general rule regarding the need to join an assignor as a party can be dispensed with should be left for another day. It is a point on which the parties have not addressed argument. 33 Mr Matthews should within 21 days bring in short minutes of orders to give effect these reasons. I certify that the preceding thirty three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein. Associate: Dated: 15 May 2003 Counsel for the Applicant: Mr G McGowan Ms H Rofe Solicitor for the Applicant: Macpherson & Kelley Counsel for the Respondents: Mr N Hopkins Solicitor for the Respondents: Deacons Date of Hearing: 11, 12, 13 & 14 March 2003 Date of Judgment: 15 May 2003